Arnold Kling  

Public Policy Bounty Hunting?

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David Leonhardt writes,


nonprofit groups like foundations pay the initial money for a new program and also oversee it, with government approval. The government will reimburse them several years later, possibly with a bonus -- but only if agreed-upon benchmarks show that the program is working.

The advantage of this approach is that programs that fail will run out of money. For example, imagine that a charter school was funded by social investors who will be reimbursed by the government only if the school meets benchmarks. If the school fails to meet those benchmarks, the investors will not get paid back and they probably will close the school. That is a good thing.

It is interesting to me that this approach is limited to nonprofits. Why should it make a difference to the government whether the organizations that successfully meet objectives are nonprofit or for-profit?

Of course, I think the overall notion is a crock. It is unlikely that bureaucrats in Washington are going to have sufficient information to design and implement a compensation scheme that works effectively. If that were possible, then we would observe successful examples of governments using market socialism. Instead, I think that Hayek is right, and the importance of local knowledge makes this form of central planning ineffective. At best, it would be less ineffective than other forms of central planning.


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COMMENTS (5 to date)
Andrea writes:

Interesting food for thought - the skeptic in me immediately picked out (what I perceived to be) some of the usual incentive problems that seem to always accompany pie-in-the-sky policy suggestions such as these while reading the NYT article, but this particular line moved me to comment:

"For starters, it’s hard to see how private money could ever pay for multibillion-dollar programs like Medicaid or education."

The author of this piece seems to be under the impression that the current levels of federal expenditures on Medicaid and education are the only economically efficient solutions. This casual (and most likely unintentional) error in thinking seems to be unfortunately all too common.

drobviousso writes:

Isn't this like a bounty system for technology research, only with social science instead of "real" science? These are already in use in both public and private sectors.

Shangwen writes:

I agree with Arnold that it is ultimately a crock. Reading the NYT article, it struck me that exactly the same thing has already been tried in the US, in the form of value-based compensation in healthcare. Basically VB is infeasible from both a measurement and operational standpoint, though Leonhardt wrote approvingly of it a couple of years ago. I would think the fair valuation problem is even worse for social programs, where benchmarks would tend towards extreme murkiness and empty, trendy language.

Andrea, you are right about the Medicaid comment. Leonhardt (and just about everybody else) assumes that the current expenditures for healthcare services are a fair measure of value, when they are grossly distorted.

The whole "social entrepreneurship" field is really a crock. It evolved as a way for cash-starved (or so they saw themselves) charities to get money and media by sounding more business-like, which apparently means asking the government for money.

Man, do I sound curmudgeonly and anti-social! I must be a libertarian....

Jeremy, Alabama writes:

1. Failure is held to be "not an option", because we are talking about childrens' futures. Far better for every child to struggle in mediocrity than for some to have better circumstances than others.

2. The inevitable failures will be blamed on insufficient money, or insufficient scale of operations. The governing class gets more leverage from failure than from success.

Doc Merlin writes:

Are nonprofits are easier than for-profits for community organizers to co-opt?

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